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Attachment 7.1 Cost and Revenue Allocation Method (CRAM) 2016/17 Access Arrangement Information 2 October 2017
Access Arrangement Information (AAI) for the period 1 July 2017 to 30 June 2022
EDM 41536822
Cost and Revenue Allocation
Method (CRAM) 2016/17
July 2017
© Copyright of Western Power
Any use of this material except in accordance with a written agreement with Western Power is prohibited.
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Table of contents
1 Introduction 4
1.1 Purpose 4
1.2 Scope 4
2 Background 5
2.1 Who we are 5
2.2 Our regulators 5
2.3 Our regulatory framework 6
3 Responsibilities and compliance 7
3.1 Our Board and management 7
3.2 Business Planning & Reporting and Finance, Treasury & Risk functions 7
3.3 Regulation & Investment Management function 7
3.4 Our staff 8
3.5 Our compliance 8
4 Organisation structure and services 9
4.1 Our structure 9
4.2 Our categories of service 9
5 Business segments 11
5.1 Our transmission and distribution regulated services 11
5.1.1 Revenue cap services (reference and non-reference services) 11 5.1.2 Non-revenue cap services (non-reference services) 12 5.1.3 Capital contributions 12
5.2 Our System Management unregulated services 13
5.3 Our unregulated services (contestable) 13
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6 Cost and revenue allocation 14
6.1 The Guidelines 14
6.2 Our principles 14
6.3 Our account code structure 15
6.3.1 Cost centre 15 6.3.2 Expense element 15
6.4 Our allocation categories 16
6.5 Our direct attribution: costs and revenue 16
6.6 Our indirect allocation: costs and revenue 16
6.6.1 Network shared costs (allocation method) 17 6.6.2 Corporate shared costs (causal correlation) 18 6.6.3 Indirect revenue (causal correlation) 18
7 Other financial statement allocation 19
7.1 Our balance sheet 19
7.2 Our cash flow statement 19
8 Regulatory adjustments 20
8.1 Our accounting policy adjustments 20
8.1.1 Capital contributions 20 8.1.2 Borrowing costs 21
8.2 Our accounting disclosure adjustments 21
8.2.1 Depreciation 21
8.3 Our regulated asset base (RAB) adjustments 21
9 Maintenance of records 22
Appendix A: Our cost allocation method 23
1. Operational expenditure 23 2. Maintenance expenditure 24 3. Customer service and billing expenditure 24 4. Corporate expenditure 25 5. Other operating expenditure 26 6. Other expenditure 27
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Appendix B: Our capital expenditure allocation method 28
1. Direct attribution 28 2. Indirect allocation 29
Appendix C: Our revenue allocation method 30
1. Revenue cap 30 2. Non-revenue cap 30 3. Capital contributions 31 4. Unregulated revenue 32 5. Proceeds from disposal of assets 32 6. Other income 32
Appendix D: Our balance sheet allocation method 33
1. Current assets 33 2. Non-current assets 34 3. Current liabilities 34 4. Non-current liabilities 35
Acronyms 36
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1 Introduction
1.1 Purpose
The purpose of the cost and revenue allocation method (CRAM) is to present and explain the
method applied to allocate and adjust cost and revenue items to the regulated and unregulated
business segments in Western Power’s annual regulatory financial statements.
Western Power is required to prepare regulatory financial statements in accordance with section 3 of
the Economic Regulation Authority’s Guidelines for Access Arrangement Information 2010
(Guidelines)1. These statements are prepared by allocating and adjusting Western Power’s audited
statutory financial statements (base accounts).
1.2 Scope
The CRAM provides responsibilities (section 3) and details on the recording and allocation of
Western Power’s:
> costs and revenue (refer section 6)
> other financial statements (refer section 7)
> regulatory adjustments (refer section 8)
between the following business segments and services (refer section 5):
> covered transmission (regulated transmission services)
> covered distribution (regulated distribution services)
> System Management (unregulated system operation services)
> unregulated (contestable services).
Western Power’s general business and regulatory framework is explained in section 2.
1 Refer to http://www.erawa.com.au for the ERA’s Guidelines for Access Arrangement Information 2010.
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2 Background
2.1 Who we are
The Electricity Networks Corporation trading as Western Power (Western Power) is a Western
Australian State Government owned corporation with the purpose of connecting people with
electricity in a way that is safe, reliable and affordable.
Western Power builds, maintains and operates the transmission and distribution networks in the
south-west corner of Western Australia. The Western Power Network forms the vast majority of the
south west interconnected network (SWIN), which together with electricity generators, comprises the
south west interconnected system (SWIS).
Western Power does not generate and/or retail electricity (like Synergy) or operate in the non-SWIS
areas of Western Australia (like Horizon Power).
Western Power is governed by an independent Board and reports to the Western Australian Minister
for Energy as the owner’s representative.
Western Power has depots and offices throughout the SWIS region including the head office in
Wellington Street, Perth.
2.2 Our regulators
To ensure Western Power provides an efficient service at a reasonable cost, business operations
are governed by legislation, regulations and codes. These include mechanisms such as performance
targets and revenue control (i.e. how much money can be earned), to the proper disposal of waste,
and the safety of employees and the public.
Western Power is regulated2 by:
> Economic Regulation Authority (ERA) - an independent body reporting directly to the Western
Australian parliament. The ERA regulates Western Power to ensure the delivery of an efficient
service at a fair price. The primary review functions performed by the ERA include Western
Power’s Access Arrangement (AA) and technical licenses.
> Public Utilities Office (PUO) - a government office within the Western Australian Department of
Finance. The PUO sets the guiding rules for the ERA and overall energy policy in Western
Australia.
> EnergySafety - part of the Western Australian Department of Consumer Protection.
EnergySafety licenses electrical contractors and sets technical guidelines for the electricity
network in relation to safety.
2 Western Power’s day-to-day work is also determined by guidelines set by other bodies such as the Environmental Protection Authority and WorkSafe.
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2.3 Our regulatory framework
As the sole owner and operator of the transmission and distribution networks in the south-west
corner of Western Australia, Western Power is effectively a natural monopoly delivering an essential
service.
To bring about economic efficiency in place of competition the ERA, on behalf of the Western
Australian community, oversees Western Power’s economic and service performance. The basis for
this oversight is the AA which is the regulatory contract agreed with the ERA for a given period, i.e.
usually five years.
Western Power’s AA:
˃ defines services to be delivered, services levels to be achieved, tariffs/fees to be charged,
general policies, and the terms and conditions for obtaining access to the Western Power
Network, e.g. by retailers and generators (like Synergy) to transport electricity to customers
˃ details the future investment plan to ensure customers continue to enjoy a good quality of
service, whilst improving network safety, security and capacity.
The AA needs to support fair prices, quality services and choice.
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3 Responsibilities and compliance
3.1 Our Board and management
Western Power’s Board and senior leadership team, including the relevant Executive and Heads of
Function, are responsible for:
> approving the annual CRAM
> declaring the annual regulatory financial statements:
- present in all material aspects, a true and fair view of Western Power’s financial position
against the audited statutory financial statements (base accounts)
- have been prepared in accordance with Australian accounting standards (and other
authoritative pronouncements of the Australian Accounting Standards Board (AASB)), the
Guidelines and Western Power’s CRAM (as applicable)
> authorising the annual regulatory financial statements.
3.2 Business Planning & Reporting and Finance, Treasury & Risk functions
The Business Planning & Reporting and Finance, Treasury & Risk functions are responsible for:
> reviewing and updating the CRAM to ensure compliance with the Guidelines and the AA, i.e.
appendix A to D
> advising key stakeholders of account code recording and reporting requirements to ensure
compliance with the regulatory framework and CRAM
> preparing June year-end regulatory financial statements, including maintenance of supporting
work papers, in accordance with the CRAM
> obtaining sign-off of the annual regulatory financial statements from the:
- Heads of Regulation & Investment Management, Business Planning & Reporting and
Finance, Treasury & Risk
- Chief Executive Officer and Chief Financial Officer, i.e. the annual declaration to the Board.
3.3 Regulation & Investment Management function
The Regulation & Investment Management function is responsible for:
> advising key stakeholders of changes to the Guidelines and the AA which impact the CRAM, i.e.
via meetings convened in the lead up to the production of the June year-end regulatory financial
statements
> updating and reviewing the CRAM to ensure compliance with the Guidelines and the AA, e.g.
regulatory adjustments
> obtaining approval and sign-off of the annual CRAM from the Heads of Regulation & Investment
Management, Business Planning & Reporting and Finance, Treasury & Risk
> supporting the Business Planning & Reporting and Finance, Treasury & Risk functions in the
decisions and implementation of account code recording and reporting requirements to ensure
(or advise on) compliance with the regulatory framework and CRAM.
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3.4 Our staff
Western Power personnel are responsible for maintaining accounting records and transactions (e.g.
within the financial system) in compliance with the regulatory framework and CRAM including
account code postings to business services and segments, e.g. via projects and/or work orders.
3.5 Our compliance
Western Power’s CRAM is monitored for accuracy, completeness and application by way of:
1. An internal review of the CRAM prior to the production of the annual regulatory financial
statements
This review is completed by representatives from the Regulation & Investment Management,
Business Planning & Reporting and Finance, Treasury & Risk functions (Finance, Regulation &
Information and Communication Technology business unit). The representatives meet to discuss
Western Power’s regulatory framework and requirements for/impact to the June year-end
regulatory financial statements. Western Power’s CRAM is assessed and updated accordingly.
Finalisation occurs when the CRAM is approved by the Heads of Regulation & Investment
Management, Business Planning & Reporting and Finance, Treasury & Risk.
2. The external review of the annual regulatory financial statements against the approved CRAM
This review is completed by Western Power’s external auditors in accordance with Australian
auditing standards, i.e. via an agreed-upon procedures engagement. The external auditors
report the findings from this review to Western Power’s Board. The audit report is also provided
to the ERA as an attachment to Western Power’s annual regulatory financial statements.
The ERA may also request an additional audit of the annual regulatory financial statements in
accordance with clause 2.7 of the Guidelines.
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4 Organisation structure and services
Western Power is a Government Trading Enterprise (GTE) incorporated under the Electricity
Corporations Act 2005. This means that Western Power:
> is ultimately accountable to the State Government (via the Minister for Energy) as the sole owner
and shareholder
> operates as a corporatised enterprise with the autonomy to make decisions regarding the
maintenance and operation of the Western Power Network.
4.1 Our structure
Figure 4.1 illustrates Western Power’s year-end organisation structure. This structure supports
Western Power’s operating model by:
> maximising efficiencies by grouping similar accountabilities together
> distributing workload equitably across the senior leadership team
> improving process flows by reducing the handling of work between functions.
Figure 4.1: Our structure (based on EDM 34195687)
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4.2 Our categories of service
Western Power provides the following categories of services:
> regulated services, i.e. covered transmission and distribution (refer section 5.1)
> unregulated services, e.g. system management (refer section 5.2) and contestable (refer section
5.3).
Figure 4.2 illustrates Western Power’s categories of service in more detail.
Figure 4.2: Our categories of service3
Table 4.2 identifies the customer types that utilise Western Power’s services.
Table 4.2: Our customers by services
Service Category of service Customers
Regulated
Revenue cap services (section 5.1.1) Residential and business customers
Non-revenue cap services (section 5.1.2)
Capital contributions (section 5.1.3)
Unregulated System management services (section 5.2) Australian Energy Market Operator (AEMO)
Contestable services (section 5.3) Residential and business customers
3 Percentages and dollar amounts are indicative only.
~82%
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5 Business segments
Section 3 of the Guidelines requires Western Power to disaggregate the audited statutory financial
statements (base accounts) into the following business segments:
> covered (regulated) transmission services
> covered (regulated) distribution services
> system management services (unregulated)
> unregulated services
> excluded transmission and distribution services4.
The remainder of this section provides an overview of the services provided by each of Western
Power’s business segments.
5.1 Our transmission and distribution regulated services
5.1.1 Revenue cap services (reference and non-reference services)
Western Power provides revenue cap services to generators and retailers accessing the
Western Power Network. Revenue cap services may be provided on the terms and
conditions (e.g. tariffs/fees) either:
> in Western Power’s AA as agreed with the ERA, i.e. reference services:
- two entry services, i.e. transmission and distribution entry services
- 11 exit services, e.g. transmission exit services, anytime and time of use energy exit
services, high and low voltage demand exit services, street lighting exit services,
unmetered supplies exit services
- four bi-directional services, i.e. anytime energy and time of use bi-directional
services (residential and business)
> reasonably negotiated between the parties in good faith, i.e. non-reference services:
- standby transmission access.
4 There are no excluded transmission or distribution services in Western Power’s current AA.
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5.1.2 Non-revenue cap services (non-reference services)
Western Power provides non-revenue cap services to customers on request. These services
are ancillary to the revenue cap services and are not subject to regulation by the ERA. Non-
revenue cap services are always non-reference services.
The commercial terms and conditions (e.g. fees) for non-revenue cap services are
negotiated between the parties. Western Power’s business and regulatory objectives require
these negotiations be reasonable and in good faith.
Examples of Western Power’s non-revenue cap services include:
> high load escorts
> transmission enquiry and connection applications, distribution connection applications,
access contract modifications
> transmission line relocations.
Non-revenue cap services are restricted to operating works. They do not include work that is
capitalised.
5.1.3 Capital contributions
Western Power receives capital contributions from developers and customers toward the
extension or augmentation of electricity infrastructure to facilitate network connection. These
contributions can be in the form of either cash or gifted (vested) network assets.
The terms and conditions (e.g. fees) for capital contributions are in accordance with Western
Power’s contributions policy and are agreed with the ERA via the AA5.
Examples of where Western Power receives capital contributions include:
> work performed for developers, e.g. the construction of electricity infrastructure within a
subdivision
> handover works, e.g. upon Western Power’s approval, electricity infrastructure
constructed by developers is gifted (vested)
> upgrade and new connections: customers (e.g. generators) contribute to the upgrade or
extension of electricity infrastructure.
5 Refer to DM 9726191 for Western Power’s Contributions Policy.
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5.2 Our system management unregulated services
During the 2016/17 financial year, Western Power transferred full responsibility for system
management services provided under the Wholesale Electricity Market (WEM)6 rules to the AEMO.
This was to support institutional reforms under the previous State Government’s electricity market
review (EMR)7.
The transferred services included:
> the operation and control of generator facilities, transmission and distribution networks and large
customer retailer supply management including demand side management
> the scheduling of generator, transmission and certain distribution outages, and management of
real-time operation of the power system.
Although full responsibility has been transferred, Western Power continues to provide the following
unregulated services per commercial terms and conditions negotiated with the AEMO:
˃ system operation services on behalf of the AEMO, i.e. under an operating agreement between 1
July 2016 and 31 October 2016; and
˃ information and communication technology services and facilities for the AEMO, i.e. under a
service agreement from 1 November 2016.
5.3 Our unregulated services (contestable)
Western Power provides unregulated services to customers that are contestable by other suppliers.
These services are not regulated by the ERA because they are subject to natural competition.
The commercial terms and conditions (e.g. fees) for unregulated services are negotiated between
the parties. Western Power’s business and regulatory objectives require these negotiations be
reasonable and in good faith.
Examples of Western Power’s unregulated services include:
> fleet, information technology and power training services
> private vegetation management
> sales/salvage of materials (including undergrounding)
> undergrounding ‘pillar to customer meter’ work.
6 The Western Australian WEM was introduced in 2006 as part of the State Government's progressive deregulation of the electricity
market. It covers wholesale electricity sales within the SWIS between sellers (i.e. generators and demand side management faci lities) and buyers (i.e. retailers and large users).
7 The previous Western Australian state government launched the EMR in 2014 to examine the structure of the electricity generation, wholesale and retail sectors within the SWIS, and the incentives for industry participants to make efficient investments and minimise costs.
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6 Cost and revenue allocation
Western Power’s cost and revenue items are allocated to business services and segments in
accordance with the Guidelines.
Western Power broadly categorises these allocations into one of two methods:
1. direct attribution method (refer section 6.5)
2. indirect allocation method (refer section 6.6).
The remainder of this section provides an overview of Western Power’s cost and revenue allocation
method.
6.1 The Guidelines
Clause 3.5 of the Guidelines requires cost and revenue items to be allocated based on the following
principles:
1. Items that are directly attributable to a business component are attributed accordingly
2. Items that are not directly attributable to a business component are to be allocated, where
practicable, on a causation basis
3. Items that are not directly attributable and cannot be practicably allocated on a causation basis
shall be allocated by a method determined by the service provider. In such cases, a supporting
note for each item allocated indicating the following is required:
> the basis for allocation
> the reason for choosing that basis
> an explanation for why no causal relationship could be established.
6.2 Our principles
In support of the above, Western Power commits to the following principles:
1. A cost or revenue item will not be attributed and/or allocated more than once
2. A direct cost or revenue item will only be attributed to one category of service
3. An indirect cost or revenue item will only be allocated once between business segments
4. The same cost or revenue item will not be treated as both a direct and an indirect cost or
revenue item
5. The same cost will only be recovered once through tariffs and fees
6. Unregulated costs will be allocated to the unregulated business segments and will be ring-
fenced from the recovery of costs through regulated services
7. The allocation of a cost or revenue item will be determined by the substance of the transaction
or event rather than the legal form
8. An avoided cost allocation method (or any other method of allocation not specifically referred to
within this CRAM) is not currently applied to allocate cost or revenue items.
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6.3 Our account code structure
All cost and revenue items are recorded in Western Power’s financial system via the account code
structure8. The account code structure enables the production of management, statutory and
regulatory reports.
Western Power’s account code structure comprises 15 characters made up of a 12 character cost
centre (refer section 6.3.1) and a three character expense element (refer section 6.3.2).
Figure 6.3 illustrates the segments of Western Power’s account code structure.
Figure 6.3: Our account code structure
cost centre expense element
6.3.1 Cost centre
A cost centre is assigned to each of Western Power’s projects and work orders. The three
segments of the cost centre are explained as follows:
1. Responsibility centre: comprises the first group of four characters of the cost centre. The
characters are numeric and are used to identify the business unit and/or function, e.g.
unique responsibility centres are used to directly attribute unregulated system
management costs and revenue.
2. Activity code: comprises the second group of four characters of the cost centre. The
characters are numeric and are used to identify the business service, e.g. 1@@@
denotes external work, 2@@@ denotes operating work and 3@@@ denotes capital
work.
3. Asset segment: comprises the third group of four characters of the cost centre. The
characters are numeric and are used to identify the asset segment, i.e. 1@@@ denotes
corporate-related, 2@@@ denotes transmission, 3@@@ denotes distribution and
4@@@ denotes network planning & operations (including unregulated system
management).
6.3.2 Expense element
An expense element is assigned to a cost centre (via a project and/or work order) to form a
complete account code when a transaction is recorded within Western Power’s financial
system. The expense element comprises the last three characters of the account code. The
characters are numeric and are used to identify the cost or revenue items, e.g. 1@@
denotes revenue and 2@@ denotes labour.
8 Refer to DM 12873053 for Western Power’s Chart of Accounts including a list of cost centre segments and expense elements.
Business unit and/or
business service
XXXX XXXX XXXX XXX
Responsibility
Centre
Activity
Code
Asset
Segment
Expense
Element
Cost/ revenue item
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6.4 Our allocation categories
For cost and revenue allocation purposes, Western Power uses two categories:
1. Direct costs and revenue, i.e. where the underlying transactions can be directly identified and
attributed to business services and/or segments. These items are directly attributed using the
account code structure (refer section 6.5).
2. Shared costs and revenue, i.e. where the underlying transactions cannot be directly attributed to
business segments. These items are allocated using either:
> the ‘indirect cost allocation method’, e.g. for network shared costs (refer section 6.6.1)
> a method that most appropriately reflects the causal correlation of the underlying
transaction, e.g. for corporate shared costs and other income (refer sections 6.6.2 and 6.6.3)
6.5 Our direct attribution: costs and revenue
Western Power’s direct items include the following:
> direct costs, e.g. labour, materials and services associated with completing the annual program
of work (PoW). The PoW is a complete schedule of operational and capital works Western
Power undertakes annually to meet the needs of the network in terms of public safety, operating
risks, regulatory compliance, capacity expansion, maintaining service standards and the
reliability needs of customers. The PoW includes both regulated and unregulated services.
> direct revenue, e.g. revenue cap, capital contributions, unregulated system management
These cost and revenue items are directly identified and attributed to business services and/or
segments via the account codes of the underlying transactions (typically booked via a project and/or
work order), i.e. per the:
> cost centres (refer section 6.3.1); and/or
> expense elements (refer section 6.3.2).
Western Power’s asset profiles in the fixed asset register are also used to directly attribute proceeds
and written down value on the disposal of assets, e.g. 53 denotes unregulated fleet assets.
Readers should refer to Appendix A to C for a more detailed list of Western Power’s direct cost and
revenue items.
6.6 Our indirect allocation: costs and revenue
Western Power’s indirect items include the following:
> network shared costs (refer section 6.6.1)
> corporate shared costs (refer section 6.6.2)
> indirect revenue, e.g. interest received (refer section 6.6.3).
These cost and revenue items are identified via the account codes of the underlying transactions
(typically booked via a project and/or work order), i.e. per the:
> cost centres (refer section 6.3.1); and/or
> expense elements (refer section 6.3.2).
Shared cost and revenue items are allocated using the method that most appropriately reflects the
causal correlation of the underlying transaction (refer sections 6.6.1 to 6.6.3).
Readers should refer to Appendix A to C for a more detailed list of Western Power’s shared cost and
revenue items, and the allocation method applied.
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6.6.1 Network shared costs (allocation method)
Western Power’s network shared costs cannot be directly attributed to specific services
within the PoW, e.g. training, travel and non-timesheet labour. Instead, these costs are
identified in a ‘shared cost pool’ and allocated across the PoW using Western Power’s
‘indirect cost allocation method’. Network shared costs relate to both regulated and
unregulated services.
The ‘indirect cost allocation method’ allocates the ‘shared cost pool’ across the PoW by
applying network shared costs proportionally based on the direct costs incurred by each
specific service. The proportional rate at which this occurs (i.e. the ‘indirect cost recovery
rate’) is calculated annually during the budget process and is monitored on a monthly basis
to review against the actual recovery. Quarterly adjustments are made if the recovery of
costs through the ‘indirect cost allocation method’ varies from the actual indirect overheads
incurred.
The rationale for the ‘indirect cost allocation method’ is that the amount of network shared
costs incurred by a specific service in the PoW is likely to be related to the amount of direct
costs incurred by the service. This ‘indirect cost allocation method’ does not differentiate
between operational and capital expenditures. It capitalises network shared costs that are
allocated to capital projects, while network shared costs allocated to the maintenance
program are treated as operating expenditure.
This allocation method allows Western Power to allocate network shared costs to specific
services in the PoW. The allocation across the whole PoW ensures a transparent method of
allocating network shared costs. This ensures that projects and programs in the PoW receive
both the allocation of their direct costs and a fair portion of related network shared costs. The
application of the method achieves:
> standardised cost allocation rules and a consistent allocation of non-attributable network
shared costs
> accountability for the allocation of network shared costs, and sensible and relevant cost
allocation.
Further information on how network shared costs are allocated can be found in Western
Power’s Internal (Indirect) Cost Allocation Procedure9.
9 Refer to DM 4495224 for Western Power’s Internal (Indirect) Cost Allocation Procedures.
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6.6.2 Corporate shared costs (causal correlation)
Western Power’s corporate shared costs include:
> common or shared functions that support all parts of the business, but that are not
directly attributed or indirectly allocated to specific services within the PoW, e.g. Finance,
Treasury & Risk function and Governance & Assurance business unit costs
> costs that do not fall within operating expenditure costs per clause 3.8.2 of the
Guidelines, e.g. depreciation and amortisation, bad debts, borrowing costs, book value
on the disposal of assets and tax equivalent.
Western Power allocates corporate shared costs to the business segments using the method
that most appropriately reflects the causal correlation of the underlying transaction. The most
common causal correlation methods are as follows:
1. Full time staff equivalents (FTE): allocation on a FTE basis is applied when the
underlying transaction has a causal correlation to the consumption of staff/labour, e.g.
fringe benefits tax. FTE is determined by the ratio of FTE within a specific business
segment to total FTE.
2. Property, plant and equipment, and intangible assets (PPE): allocation on a PPE basis is
applied when the underlying transaction has a causal correlation to Western Power’s
principal service of building, maintaining and operating the transmission and distribution
networks, e.g. insurance. PPE is determined by the ratios of PPE in the transmission
and distribution asset segments to total transmission and distribution PPE.
6.6.3 Indirect revenue (causal correlation)
Western Power’s indirect revenue includes:
> proceeds from the disposal of network planning & operations (excluding unregulated
system management) and corporate-related fixed assets, e.g. information and
communication technology
> other income, e.g. interest and discounts received.
Western Power allocates indirect revenue to the business segments using the method that
most appropriately reflects the causal correlation of the underlying transaction. PPE is the
most common causal allocation method used where a direct attribution is not available (refer
section 6.6.2).
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7 Other financial statement allocation
7.1 Our balance sheet10
Western Power’s inception-to-date assets and liabilities are allocated to business services and
segments based on the substance (and not the legal form) of the underlying transactions. This is
typically identified via the correlating cost or revenue items and attributed/allocated accordingly (refer
section 6).
Consistent with this, assets and liabilities that cannot be directly attributed to business services
and/or segments are allocated using the method that most appropriately reflects the causal
correlation of the underlying transaction. FTE and PPE are the common causal allocation methods
applied for this purpose, i.e. where a direct attribution is not available (refer section 6.6.2).
Readers should refer to Appendix D for a more detailed list of assets and liabilities, and the
allocation method applied.
7.2 Our cash flow statement
Western Power’s cash transactions are recorded collectively in a single bank account. For the
production of the annual regulatory cash flow statement, these transactions are allocated to business
services and segments using the method that most appropriately reflects the causal correlation of
the underlying transaction. This is typically identified by the correlating costs, revenue or balance
sheet items and attributed/allocated accordingly (refer sections 6 and 7.1).
Cash is only allocated to the transmission and distribution business segments when preparing the
annual regulatory balance sheet. PPE is the causal allocation method applied for this purpose, i.e.
where a direct attribution is not available (refer section 6.6.2).
10 The allocation of the balance sheet occurs on the inception-to-date balances. This has the impact of annually realigning the balance sheet (i.e. via year-to-date movements) to reflect the most recent and accurate causal allocation basis.
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8 Regulatory adjustments
When preparing the annual regulatory financial statements, Western Power adjusts the audited
statutory financial statements (base accounts) for differences in:
> accounting policies - differences between the statutory (i.e. Australian accounting standards)
and regulatory (i.e. Guidelines) accounting policies (refer section 8.1)
> accounting disclosures - differences between the statutory (i.e. Australian accounting standards)
and regulatory (i.e. Western Power’s AA forecast) accounting disclosures (refer section 8.2)
> capital expenditure/additions - differences between the statutory (i.e. Australian accounting
standards) and regulatory (i.e. regulated asset base (RAB)) capital expenditure/additions (refer
section 8.3).
Any tax equivalent associated with the above is also adjusted for, using the tax rates enacted or
substantially enacted as at the reporting date.
The remainder of this section provides an overview of Western Power’s regulatory adjustments.
8.1 Our accounting policy adjustments
Clause 3.6 of the Guidelines requires Western Power to make adjustments to the regulatory financial
statements where the regulatory accounting policies differ to those in the audited statutory financial
statements (base accounts).
Western Power currently reports the following regulatory adjustments for accounting policies.
8.1.1 Capital contributions
Regulatory financial statements - all capital contributions received in the reporting period are
recognised as revenue in Western Power’s regulatory profit and loss account. This is in
compliance with clause 3.8.4 of the Guidelines.
Statutory financial statements - capital contributions received in the reporting period are
recognised as revenue in Western Power’s statutory profit and loss account only when the
capital works for which the contribution relates has been energised/connected to the
network. Until then, contributions are deferred to the statutory balance sheet. This is in
compliance with AASB Interpretation 18 Transfers of Assets from Customers.
As a result, regulatory adjustments are required for the following:
> restate contributions in the regulatory profit and loss account for capital contributions
received in the reporting period but which were deferred in the statutory balance sheet
(and hence not recognised in the statutory profit and loss account)11
> remove deferred income (for capital contributions only) from the regulatory balance
sheet which have now been recognised in the regulatory profit and loss account.
11 Transmission capital contributions adjusted in the regulatory profit and loss account are directly attributed to the regulatory categories based on the activity codes of the parent capital projects underlying the contributions. Distribution capital contributions are indirectly allocated to the regulatory categories that most appropriately reflect the causal correlation of the contributions, i.e. customer driven or state underground power project.
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8.1.2 Borrowing costs
Regulatory financial statements - all borrowing costs are expensed to Western Power’s
regulatory profit and loss account and hence, excluded from recovery through regulated
network tariffs/fees12. This is in compliance with clause 3.8.1 of the Guidelines.
Statutory financial statements - all borrowing costs are expensed to Western Power’s
statutory profit and loss account unless they are directly attributable to the acquisition,
construction or production of qualifying assets13. In this instance, borrowing costs are
capitalised to the statutory balance sheet. This is in compliance with AASB 123 Borrowing
Costs.
As a result, regulatory adjustments are required for the following:
> restate borrowing costs in the regulatory profit and loss account for those which were
capitalised to the statutory balance sheet (and hence not recognised in the statutory
profit and loss account)
> remove capitalised borrowing costs from regulatory capital additions which have now
been recognised in the regulatory profit and loss account
> remove capitalised borrowing costs from property, plant and equipment, and intangible
assets in the regulatory balance sheet which have now been recognised in the
regulatory profit and loss account.
8.2 Our accounting disclosure adjustments
Western Power currently reports the following regulatory adjustments for accounting disclosures:
8.2.1 Depreciation
Regulatory financial statements - unregulated fleet depreciation is recognised as operating
expenditure costs in Western Power’s regulatory profit and loss account. This is in line with
the forecast assumptions and expenditure disclosures in Western Power’s current AA.
Statutory financial statements - unregulated fleet depreciation is recognised as depreciation
and amortisation in Western Power’s statutory profit and loss account. This is in compliance
with AASB 116 Property, Plant and Equipment.
As a result, a regulatory adjustment is required for the following:
> transfer unregulated fleet depreciation to operating expenditure costs in the regulatory
profit and loss account which were recognised as depreciation and amortisation in the
statutory profit and loss account.
This adjustment (including the adjustment amount) is authorised by the Enterprise &
Regulation Planning & Reporting Manager in the Business Reporting & Planning function.
8.3 Our regulated asset base (RAB) adjustments
There are currently no regulatory RAB adjustments.
12 This occurs because Western Power’s regulated revenue cap already includes a return on the capital component (calculated as the sum of the RAB multiplied by the weighted average cost of capital).
13 Qualifying assets are defined as assets that necessarily take a substantial period of time to be ready for their intended use.
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9 Maintenance of records
Western Power maintains accounting records and transactions in accordance with:
> Board approved policies and supporting frameworks, guidelines and/or standards (as relevant)
> Australian accounting standards
> other legislative and regulatory requirements.
These records and transactions include (but are not limited to), the financial system (including the
account code structure within), account reconciliations, subsidiary ledger systems and supports,
invoices, supporting documentation (e.g. submissions, correspondence letters/memos, minutes from
Board meetings) and work papers (e.g. calculation models/spreadsheet).
Western Power’s accounting records and transactions are made available to the external auditors for
the purpose of the annual:
> audit of the statutory financial statements
> review of the regulatory financial statements.
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Appendix A: Our cost allocation method
Clause 3.8.2 of the Guidelines requires Western Power to report at a minimum, within each business
segment, the following operating expenditure cost categories:
1. Operations
2. Maintenance
3. Customer service and billing
4. Corporate
5. Other operating expenditure
The remainder of this appendix presents a list of costs for each of these categories, and the allocation
method applied.
1. Operational expenditure
Operational expenditure includes costs associated with the operation of the transmission and distribution
networks. This expenditure is allocated as follows:
Table A.1: Operational expenditure allocation
Operational Expenditure Transmission Distribution
System Management (unregulated) Unregulated
Access Applications Direct Direct n/a n/a
Reliability Operations Direct Direct n/a n/a
SCADA14 and Communications Direct Direct n/a n/a
Transmission Line Relocations Direct Direct n/a n/a
Works in Vicinity Direct Direct n/a n/a
Other Non-Revenue Cap (e.g. extended metering services, investigations and high load escorts)
Direct Direct n/a n/a
Network Operations (excluding unregulated system management)
FTE FTE n/a n/a
Material Sales/Salvage (excluding inventory write downs)
n/a n/a n/a Direct
Perth Solar City n/a n/a n/a Direct
Stand Alone Power Systems n/a n/a n/a Direct
State Underground Power Project (‘pillar to customer meter’ work)
n/a n/a n/a Direct
14 The Supervisory Control and Data Acquisition (SCADA) system is Western Power’s critical information technology tool for managing the transmission and distribution networks, both day-to-day and in emergencies.
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2. Maintenance expenditure
Maintenance expenditure includes costs associated with maintaining the transmission and distribution
networks. This expenditure is allocated as follows:
Table A.2: Maintenance expenditure allocation
Maintenance Expenditure Transmission Distribution
System Management (unregulated) Unregulated
Corrective Deferred Direct Direct n/a n/a
Corrective Emergency Direct Direct n/a n/a
Preventative Condition Direct Direct n/a n/a
Preventative Routine Direct Direct n/a n/a
3. Customer service and billing expenditure
Customer service and billing expenditure includes costs associated with the ongoing operations of the
call centre, and provision of metering (excluding unregulated and extended metering services) and
connection related services. This expenditure is allocated as follows:
Table A.3: Customer service and billing expenditure allocation
Customer Service and Billing Expenditure Transmission Distribution
System Management (unregulated) Unregulated
Call Centre Direct Direct n/a n/a
Cancelled Project Design (distribution customer driven)
Direct Direct n/a n/a
Guaranteed Service Payment Direct Direct n/a n/a
Metering (including electrical system inspections, excluding extended
metering services)
Direct Direct n/a n/a
Power Training Services n/a n/a n/a Direct
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4. Corporate expenditure
Corporate expenditure includes common or shared functions that support all parts of the business. This
expenditure is allocated as follows:
Table A.4: Corporate expenditure allocation
Corporate Expenditure Transmission Distribution
System Management (unregulated) Unregulated
Supply Extension Scheme/ Contributory Extension Scheme
Direct Direct n/a n/a
Information & Communication Technology Services n/a n/a n/a Direct
Metering Services n/a n/a n/a Direct
Rental Properties n/a n/a n/a Direct
Chief Executive Officer FTE FTE n/a FTE
Customer & Corporate Services (excluding:
> metering and customer service centre
> unregulated activities, e.g. fleet services, external service level agreements, rental properties
> annual rates and taxes, inventory write downs)
FTE FTE n/a FTE
Fringe Benefits Tax FTE FTE n/a FTE
Inventory Write Downs Inventory Inventory n/a n/a
Annual Rates and Taxes PPE PPE n/a n/a
Asset Management & Asset Operations1
(excluding unregulated system management and Network Operations)
PPE PPE n/a FTE
Finance & Regulation1
(excluding ERA costs under ERA (Electricity Network Access Funding Regulations), EnergySafety Levy, insurance, bad debts)
PPE PPE n/a FTE
Governance & Assurance1
(excluding licence fees) PPE PPE n/a FTE
Insurance1 PPE PPE n/a FTE
Change & Innovation1 PPE PPE n/a FTE
EnergySafety Levy PPE PPE n/a n/a
ERA Costs PPE PPE n/a n/a
License Fees PPE PPE n/a n/a
Realised Gains/Losses on Foreign Exchange PPE PPE n/a n/a
1 Asset Management & Operations, Finance & Regulation, Governance & Assurance, Insurance and Change & Innovation costs are allocated in two steps. First, they are allocated to the unregulated business segment on an FTE basis. Second, the remaining regulated costs are indirectly allocated on a PPE basis to the transmission and distribution business segments. This allocation method is also applied to the correlating assets and liabilities in accordance with section 7.1., e.g. prepayments and payables.
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5. Other operating expenditure
Other operating expenditure includes costs that are not associated with operations, maintenance,
customer services and billing, and corporate. This expenditure is allocated as follows:
Table A.5: Other operating expenditure allocation
Other Operating Expenditure Transmission Distribution
System Management (unregulated) Unregulated
Cancelled Projects (internally driven, distribution quotation and management)
Direct Direct n/a n/a
Network Planning Costs Direct Direct n/a n/a
Non Recurring Operating Expenditure Direct Direct n/a n/a
Tariff Equalisation Contribution n/a Direct n/a n/a
System Management n/a n/a Direct n/a
Fleet Services n/a n/a n/a Direct
Private Vegetation Management n/a n/a n/a Direct
Other (including service level agreements)
n/a n/a n/a Direct
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6. Other expenditure
Other expenditure includes costs that do not fall within clause 3.8.2 of the Guidelines. This expenditure is
allocated as follows:
Table A.6: Other expenditure allocation
Other Expenditure Transmission Distribution
System Management (unregulated) Unregulated
Depreciation and Amortisation1,2 Direct & then PPE for remaining
Direct & then PPE for remaining
Direct Direct (excluding fleet2)
Bad Debts Network Services Revenue
Network Services Revenue
n/a Network Services Revenue
Borrowing Costs3 PPE (reported) PPE (reported) Direct PPE (reported)
Book Value on Disposal of Assets4 Direct & then PPE for remaining
Direct & then PPE for remaining
Direct Direct
Tax Equivalent Earnings before Tax Equivalent
Earnings before Tax Equivalent
Earnings before Tax Equivalent
Earnings before Tax Equivalent
1 Depreciation and amortisation is allocated in two steps. First, direct depreciation and amortisation is attributed to the transmission, distribution and unregulated (including system management) business segments. Second, the remaining depreciation and amortisation (e.g. capitalised depreciation, network planning & operations (excluding unregulated system management), corporate-related and unregulated fleet depreciation2) is indirectly allocated on a PPE basis to the transmission and distribution business segments.
2 Unregulated fleet depreciation is allocated to the transmission and distribution business segments consistent with their disclosure as operating expenditure costs in Western Power’s current AA (refer section 8.2.1).
3 Borrowing costs are allocated in two steps. First, unregulated system management borrowing costs are directly attributed using the method outlined in the System Management Financial Management Procedure15. Second, the remaining borrowing costs are indirectly allocated on a PPE (as reported in the regulatory balance sheet) basis to the transmission, distribution and unregulated business segments.
4 Book value on the disposal of assets is allocated in two steps. First, direct disposals are attributed to the transmission, distribution and unregulated (including system management) business segments. Second, the remaining disposals (e.g. network planning & operations (excluding unregulated system management) and corporate-related) are indirectly allocated on a PPE basis to the transmission and distribution business segments.
15 Refer to DM 10239216 for Western Power’s System Management Financial Management Procedure.
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Appendix B: Our capital expenditure allocation method
Clause 3.8.1 of the Guidelines requires Western Power to report at a minimum, within each business
segment, the following capital expenditure regulatory categories:
1. Growth
Capital expenditure for the purposes of increasing the capacity of assets or construction of new assets to
meet growth in demand, e.g.:
> transmission: capacity expansion, customer driven
> distribution: capacity expansion, customer driven, gifted network assets.
2. Asset replacement and renewal
Capital expenditure for the purposes of replacing assets and maintaining service levels, e.g.:
> transmission: asset replacement
> distribution: asset replacement, state underground power project, metering, wood pole management.
3. Improvement in service
Capital expenditure for the purposes of improving service levels and reliability to meet customer
preferences, e.g.:
> transmission: SCADA and communications
> distribution: reliability driven, SCADA and communications.
4. Compliance
Capital expenditure for the purposes of meeting regulatory obligations, e.g.:
> transmission and distribution: regulatory compliance (safety, environmental, statutory).
5. Corporate
Capital expenditure for corporate-related activities, e.g.:
> transmission and distribution: information technology, business support (corporate shared costs).
1. Direct attribution
Capital expenditure is directly identified and attributed to business services and/or segments based on
the activity codes and asset segments of the parent capital projects underlying the transactions16, i.e.:
> the activity code identifies the regulatory category of capital expenditure
> the asset segment identifies the business segment.
The responsibility centre is also used to directly attribute capital expenditure to:
> the unregulated system management business segment
> some corporate shared cost categories (business support) (refer table B.2).
16 Where capital expenditure is not posted to a project (e.g. strategic spares not yet issued to a service), the asset segment and capital expenditure regulatory category is determined using a method that most appropriately reflects the causal correlation of the underlying transaction (e.g. typically asset replacement).
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2. Indirect allocation
Capital expenditure that cannot be directly attributed to business segments is allocated using the method
that most appropriately reflects the causal correlation of the underlying transaction. PPE is the most
common causal allocation method applied for this purpose, i.e. where a direct attribution is not available
(refer section 6.6.2).
Tables B.1 and B.2 list Western Power’s indirect capital expenditure, and the allocation method applied.
Table B.1: Information technology capital expenditure allocation
Information Technology Capital Expenditure Transmission Distribution
System Management (unregulated) Unregulated
Information Technology (strategic, business, infrastructure)
PPE PPE n/a n/a
Table B.2: Corporate shared (business support) capital expenditure allocation
Corporate Shared (Business Support) Capital Expenditure Transmission Distribution
System Management (unregulated) Unregulated
Corporate Real Estate PPE PPE n/a n/a
Other Plant and Equipment1 Direct & then PPE for remaining
Direct & then PPE for remaining
n/a n/a
1 Other plant and equipment capital expenditure is allocated in two steps. First, the direct capital expenditure is attributed to the transmission and distribution business segments. Second, the remaining capital expenditure is indirectly allocated on a PPE basis to the transmission and distribution business segments.
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Appendix C: Our revenue allocation method
1. Revenue cap (regulated)
Western Power’s revenue cap services are explained in section 5.1.1. Revenue from these services is
allocated as follows:
Table C.1: Revenue cap services allocation (Network services (revenue cap) line item)
Network Services: Revenue Cap Transmission Distribution
System Management (unregulated) Unregulated
Tariff Direct Direct n/a n/a
2. Non-revenue cap (regulated)
Western Power’s non-revenue cap services are explained in section 5.1.2. Revenue from these services
is reported by the following categories:
1. network services: non-revenue cap - this is revenue from non-revenue cap services where there is a
direct linkage to the expenses associated with the service, e.g. high load escorts and transmission
line relocations (refer table C.2.1)
2. network services: other - this is revenue from non-revenue cap services where there is no direct
linkage to the expenses associated with the service, e.g. car versus pole damage, streetlight security
maintenance and network inspections (refer table C.2.2).
Tables C.2.1 and C.2.2 list Western Power’s non-revenue cap services, and the allocation method
applied.
Table C.2.1: Non-revenue cap services allocation (Network services (non-revenue cap) line item)
Network Services: Non-Revenue Cap Transmission Distribution
System Management (unregulated) Unregulated
Access Applications Direct Direct n/a n/a
Metering Extended Services Direct Direct n/a n/a
Transmission Line Relocations Direct Direct n/a n/a
Other (e.g. high load escorts, temporary supply and disconnection, works in vicinity)
Direct Direct n/a n/a
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Table C.2.2: Other network services allocation (Network services (other) line item)
Network Services: Other Transmission Distribution
System Management (unregulated) Unregulated
Cancelled Project Design (distribution customer driven)
Direct Direct n/a n/a
Corrective Deferred and Emergency Maintenance
(e.g. damage)
Direct Direct n/a n/a
Metering Inspections and Maintenance Direct Direct n/a n/a
SCADA and Communications Direct Direct n/a n/a
Supply Extension Scheme/ Contributory Extension Scheme
Direct Direct n/a n/a
Tax Recoveries on Capital Contributions Direct Direct n/a n/a
Support Services1 Direct & then PPE for
remaining
Direct & then PPE for
remaining
n/a n/a
1 Support services revenue is allocated in two steps. First, the direct revenue is attributed to the transmission and distribution business segments. Second, the remaining revenue is indirectly allocated on a PPE basis to the transmission and distribution business segments.
3. Capital contributions (regulated)
Western Power’s capital contributions are explained in section 5.1.3. They are allocated as follows:
Table C.3: Contributions allocation
Contributions1 Transmission Distribution
System Management (unregulated) Unregulated
Customer Funded Direct Direct n/a n/a
Gifted Network Assets n/a Direct n/a n/a
State Underground Power Project n/a Direct n/a n/a
1 Where capital contributions have been received for projects later cancelled, the contributions are subsequently recognised as non-revenue cap. This is to offset any applicable project costs.
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4. Unregulated revenue
Western Power’s unregulated services are explained in sections 5.2 and 5.3. Revenue from these
services is allocated as follows:
Table C.4: Unregulated revenue allocation (Network services (other) line item)
Network Services: Unregulated Transmission Distribution
System Management (unregulated) Unregulated
System Management n/a n/a Direct n/a
Fleet Services n/a n/a n/a Direct
Information & Communication Technology Services n/a n/a n/a Direct
Material Sales/Salvage n/a n/a n/a Direct
Metering Services n/a n/a n/a Direct
Private Vegetation Management n/a n/a n/a Direct
Power Training Services n/a n/a n/a Direct
State Underground Power Project (‘pillar to customer meter’ work)
n/a n/a n/a Direct
Other (including service level agreements) n/a n/a n/a Direct
5. Proceeds from disposal of assets
Proceeds are generated from the disposal of Western Power’s assets and are allocated as follows:
Table C.5: Proceeds from disposal of assets allocation
Proceeds from Disposal of Assets Transmission Distribution
System Management (unregulated) Unregulated
Proceeds from Disposal of Assets1 Direct & then PPE for
remaining
Direct & then PPE for
remaining
Direct Direct
1 Proceeds on the disposal of assets are allocated in two steps. First, direct disposals are attributed to the transmission, distribution and unregulated (including system management) business segments. Second, the remaining disposals (e.g. network planning & operations (excluding unregulated system management) and corporate-related) are indirectly allocated on a PPE basis to the transmission and distribution business segments.
6. Other income
Other income is generated from services incidental to the core activities of Western Power’s business
and is identified and recognised in line with statutory reporting requirements. It is allocated as follows:
Table C.6: Other income
Other income Transmission Distribution
System Management (unregulated) Unregulated
Insurance Recoveries Direct Direct n/a n/a
Support Services Direct Direct n/a n/a
Interest Received PPE PPE Direct n/a
Discounts Received PPE PPE n/a n/a
Employee Rental Properties n/a n/a n/a Direct
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Appendix D: Our balance sheet allocation method17
1. Current assets
Current assets are allocated as follows:
Table D.1: Current assets allocation
Current Assets Transmission Distribution
System Management (unregulated) Unregulated
Cash and Cash Equivalents1 PPE PPE n/a n/a
Trade and Other Receivables (including Current Tax Equivalent Assets)2
Direct & then Network Services Revenue,
Accrued Revenue &/ or PPE (reported) for
remaining
Direct & then Network Services Revenue,
Accrued Revenue &/ or PPE (reported) for
remaining
Direct & then PPE (reported only) for
remaining
Direct & then Network Services Revenue &/or PPE (reported only) for remaining
Prepayments3 Direct & then PPE &/or FTE for remaining
Direct & then PPE &/or FTE for remaining
Direct Direct & then FTE for remaining
Accrued Revenue4 Direct & then Accrued Revenue for remaining
Direct & then Accrued Revenue for remaining
n/a n/a
Inventories5 Direct & then Inventories for
remaining
Direct & then Inventories for
remaining
n/a Direct
Derivative Financial Instruments PPE PPE n/a n/a
1 Cash and cash equivalents are recorded collectively within a single bank account, and are indirectly allocated on a PPE basis to the transmission and distribution business segments.
2 Trade and other receivables are allocated in two steps. First, direct receivables are attributed to the transmission, distribution and unregulated (including system management) business segments. Second, the remaining receivables are indirectly allocated on a network services revenue (e.g. general receivables and provision for doubtful debts), accrued revenue (e.g. network access receivables) or PPE (reported) (e.g. current tax equivalent assets) basis to the transmission, distribution, and/or unregulated (including system management) business segments.
3 Prepayments are allocated in two steps. First, direct prepayments are attributed to the transmission, distribution and unregulated (including system management) business segments. Second, the remaining prepayments are indirectly allocated on a PPE (e.g. information technology and insurance) or FTE (e.g. employee-related) basis to the transmission, distribution and/or unregulated business segments.
4 Accrued revenue is allocated in two steps. First, direct accrued revenue is attributed to the transmission and distribution business segments. Second, the remaining accrued revenue (e.g. disputed amounts) is indirectly allocated on a direct accrued revenue basis to the transmission and distribution business segments.
5 Inventories are allocated in two steps. First, direct inventories are attributed to the transmission, distribution and unregulated business segments. Second, the remaining inventories (e.g. inventory write downs) are indirectly allocated on a direct inventories basis to the transmission and distribution business segments.
17 The allocation of the balance sheet occurs on the inception-to-date balances. This has the impact of annually realigning the balance sheet (i.e. via year-to-date movements) to reflect the most recent and accurate causal allocation basis.
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2. Non-current assets
Non-current assets are allocated as follows:
Table D.2: Non-current assets allocation
Non-Current Assets Transmission Distribution
System Management (unregulated) Unregulated
Property, Plant and Equipment, and Intangible Assets1
Direct & then PPE for remaining
Direct & then PPE for remaining
Direct Direct
Trade and Other Receivables2 Direct & then Network Services Revenue
Direct & then Network Services Revenue
Direct Direct & then Network Services Revenue
Derivative Financial Instruments PPE PPE n/a n/a
1 Property, plant and equipment, and intangible assets are allocated in two steps. First, direct property, plant and equipment, and intangible assets are attributed to the transmission, distribution and unregulated (including system management) business segments. Second, the remaining property, plant and equipment, and intangible assets (e.g. network planning & operations (excluding unregulated system management) and corporate-related) are indirectly allocated on a PPE basis to the transmission and distribution business segments. Works under construction are not allocated to the unregulated business segment until commissioned to a specific unregulated asset.
2 Trade and other receivables are allocated in two steps. First, direct receivables are attributed to the transmission, distribution and unregulated (including system management) business segments. Second, the remaining receivables are indirectly allocated on a network services revenue (e.g. general receivables) basis to the transmission, distribution and unregulated business segments.
3. Current liabilities
Current liabilities are allocated as follows:
Table D.3: Current liabilities allocation
Current Liabilities Transmission Distribution
System Management (unregulated) Unregulated
Borrowings Borrowings (non-current)
Borrowings (non-current)
n/a Borrowings (non-current)
Trade and Other Payables, and Current Tax Equivalent1
Direct & then PPE &/or FTE for remaining
Direct & then PPE &/or FTE for remaining
Direct & then PPE (reported only) &/or FTE for remaining
Direct & then PPE (reported only), FTE
&/or operating expenditure costs
Derivative Financial Instruments PPE PPE n/a n/a
Deferred Income2 Direct & PPE for remaining
Direct & PPE for remaining
Direct Direct
Provisions3 Direct & then PPE &/ or FTE for remaining
Direct & then PPE &/ or FTE for remaining
Direct & then FTE for remaining
Direct & then FTE for remaining
1 Trade and other payables, and current tax equivalent are allocated in two steps. First, direct payables are attributed to the transmission, distribution and unregulated (including system management) business segments. Second, the remaining payables and current tax equivalent are indirectly allocated on a PPE (e.g. trade and other payables, accruals and current tax equivalent), FTE (e.g. employee-related) or operating expenditure costs (e.g. unregulated trade payables and accruals) basis to the transmission, distribution and/or unregulated (including system management) business segments.
3 Deferred income is allocated in two steps. First, direct deferred income is attributed to the transmission, distribution and unregulated (including system management) business segments. Second, the remaining deferred income is indirectly allocated on a PPE basis to the transmission and distribution business segments.
3 Provisions are allocated in two steps. First, direct provisions are attributed to the transmission, distribution and unregulated (including system management) business segments. Second, the remaining provisions are indirectly allocated on a PPE (e.g. rehabilitation and environmental costs) or FTE (e.g. employee entitlements) basis to the transmission, distribution and/or unregulated (including system management) business segments.
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4. Non-current liabilities
Non-current liabilities are allocated as follows:
Table D.4: Non-current liabilities allocation
Non-Current Liabilities Transmission Distribution
System Management (unregulated) Unregulated
Borrowings1 Net assets (before borrowings)
Net assets (before borrowings)
= PPE (reported) Net assets (before borrowings)
Trade and Other Payables2 Direct & then PPE for remaining
Direct & then PPE for remaining
Direct Direct
Derivative Financial Instruments PPE PPE n/a n/a
Deferred Tax Equivalent Liabilities PPE (reported) PPE (reported) PPE (reported) PPE (reported)
Deferred Income Direct Direct n/a n/a
Provisions3 Direct & then PPE &/ or FTE for remaining
Direct & then PPE &/ or FTE for remaining
Direct & then FTE for remaining
Direct & then FTE for remaining
1 Borrowings are allocated in two steps. First, borrowings are indirectly allocated to the unregulated system management business segment to equal reported PPE. This is in accordance with the System Management Financial Management Procedure18. Second, the remaining borrowings are indirectly allocated on a net assets (before borrowings) basis to the transmission, distribution and unregulated business segments.
2 Trade and other payables are allocated in two steps. First, direct payables are attributed to the transmission, distribution and unregulated (including system management) business segments. Second, the remaining payables are indirectly allocated on a PPE (e.g. other payables) basis to the transmission and distribution business segments.
3 Provisions are allocated in two steps. First, direct provisions are attributed to the transmission, distribution and unregulated (including system management) business segments. Second, the remaining provisions are indirectly allocated on a PPE (e.g. rehabilitation and environmental costs) or FTE (e.g. employee entitlements) basis to the transmission, distribution and/or unregulated (including system management) business segments.
18 Refer to DM 10239216 for Western Power’s System Management Financial Management Procedure.
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Acronyms
Acronym Description
Access Arrangement (AA) Western Power’s AA:
> defines services to be delivered, services levels to be achieved, tariffs/fees to be charged, general policies, and the terms and conditions for obtaining access to the Western Power Network, e.g. by retailers and generators (like Synergy) to transport electricity to customers
> details the future investment plan to ensure customers continue to enjoy a good quality of service, whilst improving network safety, security and capacity.
The AA needs to support fair prices, quality services and choice. It is approved by the ERA.
Australian Accounting Standards Board (AASB)
The AASB is responsible for developing, issuing and maintaining Australian accounting standards and related pronouncements. Where applicable, Western Power complies with these standards/pronouncement when preparing the statutory financial statements (base accounts).
Australian Energy Market Operator (AEMO) The AEMO provides system management services under the WEM rules. These services include:
> the operation and control of generator facilities, transmission and distribution networks and large customer retailer supply management including demand side management
> the scheduling of generator, transmission and certain distribution outages, and management of real-time operation of the power system.
Until the end of the 2015/16 financial year, Western Power provided these regulated services.
Cost and Revenue Allocation Method (CRAM)
Western Power’s CRAM is an approved document presenting and explaining the method applied to allocate and adjust cost and revenue items to regulated and unregulated business segments in the annual regulatory financial statements.
Electricity Market Review (EMR) The EMR was launched in 2014 by the previous Western Australian State Government to examine:
> the structure of the electricity generation, wholesale and retail sectors within the SWIS; and
> the incentives for industry participants to make efficient investments and minimise costs.
Economic Regulation Authority (ERA) The ERA:
> is an independent body reporting directly to the Western Australian parliament
> regulates Western Power to ensure delivery of an efficient service at a fair price.
The primary review functions performed by the ERA include Western Power’s AA and technical licenses.
Full time equivalents (FTE) FTE is the allocation method Western Power applies when the underlying transaction has a casual correlation to the consumption of staff/labour, e.g. fringe benefits tax. It is generally determined by the ratio of FTE within a specific business segment to total FTE.
Government Trading Enterprise (GTE) A GTE is a government owned body incorporated under an act establishing it with the same functions as a private sector enterprise, e.g. Electricity Corporations Act 2005.
Guidelines for Access Arrangement Information Guidelines 2010 (Guidelines)
The Guidelines set out in detail the information required within Western Power’s AA for the purposes of informing the ERA, applicants and users. Section 3 of the Guidelines requires Western Power to prepare regulatory financial statements.
Property, plant and equipment, intangible assets (PPE)
PPE is the allocation method Western Power applies when the underlying transaction has a casual correlation to the principal service of building, maintaining and operating the transmission and distribution networks, e.g. insurance. It is determined by the ratios of PPE in the transmission and distribution asset segments to total transmission and distribution PPE.
Program of Work (PoW) The PoW is a complete schedule of operational and capital works Western Power undertakes annually to meet the needs of the network in terms of public safety, operating risks, regulatory compliance, capacity expansion, maintaining service standards and the reliability needs of customers. The PoW includes both regulated and unregulated services.
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Acronym Description
Public Utilities Office (PUO) The PUO:
> is a government office within the Western Australian Department of Finance
> sets the guiding rules for the ERA and overall energy policy in Western Australia.
Regulated asset base (RAB) Western Power’s RAB is used to determine the capital costs (the return on and return of components) to be recovered through regulated network tariffs/fees.
Supervisory Control and Data Acquisition (SCADA)
The SCADA system is Western Power’s critical information technology tool for managing the transmission and distribution networks, both day-to-day and in emergencies.
South West Interconnected Network (SWIN) The SWIN is the network component of the SWIS, including all the small pockets of infrastructure, Western Power does not own or manage.
South West Interconnected System (SWIS) The SWIS comprises the Western Power Network together with electricity generators. Western Power does not own the SWIS.
Wholesale Electricity Market (WEM) The WEM:
> was introduced in 2006 as part of the Western Australian government's progressive deregulation of the electricity market
> covers wholesale electricity sales within the SWIS between sellers (i.e. generators and demand side management facilities) and buyers (i.e. retailers and large users).